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Business Times
4 days ago
- Business
- Business Times
South-east Asian banks must keep up decarbonisation efforts despite lower climate targets
[SINGAPORE] The Net-Zero Banking Alliance (NZBA) has recently lowered its climate ambition requirements for member banks, but South-east Asian banks that are part of the alliance should not interpret this as a green light to slow down their pace of decarbonisation. In fact, given how changes to NZBA's guidance has attracted criticisms from various climate groups and affected the credibility of financial institutions' climate commitments, the onus is on these banks to demonstrate how the less ambitious climate targets can still result in meaningful real-world decarbonisation. NZBA announced about a month ago that it was dropping its requirements for member banks' net-zero targets to be aligned with a decarbonisation pathway that limits global warming to 1.5 degrees Celsius above pre-industrial level. This is an aspirational target under the Paris Agreement that has become the gold standard in the global quest to address the climate crisis. Banks are, however, realising that the 1.5 deg C target is increasingly hard to reach. Over the last six months or so, several Wall Street and Japanese banks have exited the group one after another. To maintain its relevance, NZBA lowered its guidance – requiring member banks to align their climate goals to keep global warming to 'well below 2 deg C'. Member banks are also no longer required to aim for net-zero emissions by 2050. The new guidance does not mandate any timeframe. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Giant leap backwards As expected, criticisms came swiftly. Several climate groups have denounced the decision by NZBA as a giant leap backwards. While a 1.5 deg C target is widely seen as the ideal and safest target, keeping global temperature rise to 'well below 2 degrees' is still well within the core objective of the Paris Agreement. The actual text of the Paris Agreement states that countries should 'hold the increase in the global average temperature to 'well below 2 deg C' above pre-industrial levels and pursue efforts to limit the temperature increase to 1.5 deg C pre-industrial levels'. In addition, the revised requirements are a more accurate reflection of the reality of South-east Asian banks, whose lending portfolio have large exposures to companies within the region, which is still highly reliant on fossil fuels. Their ability to reduce their financed emissions and meet their net-zero targets is somewhat dependent on the ability of their clients to decarbonise. This, in turn, is affected by the regulatory landscape as well as the technological advancements of clean energy alternatives. It is no wonder that there are only five banks from South-east Asia that are members of the alliance: Singapore banks OCBC, UOB and DBS, as well as Malaysian banks CIMB and Maybank. At least two of them – UOB and CIMB – supported these changes by the NZBA when it was earlier under review. The previous requirement where member banks have to set a target for net-zero financed emissions by 2050 would naturally exclude many South-east Asian banks, which operate in markets where the governments have either not set a net-zero target, or has one that is beyond 2050, such as Indonesia. Greater flexibility The updates therefore provide greater flexibility for South-east Asian banks already in the alliance in achieving their net-zero targets, and also opens doors for others to join. There is no reason one of the foundational principles of the Paris Agreement, known as the Common but Differentiated Responsibilities and Respective Capabilities principle, should not be applied to banks and their net-zero ambitions. The principle underscores how countries' levels of responsibility and capacity to address climate change should differ based on their historical emissions and economic development, even though all of them share the obligation to address climate change. Its underlying principle of equity should also apply to financial institutions and their net-zero ambitions. It doesn't make sense for those with a high exposure to emerging markets to decarbonise their lending portfolio and be net-zero by 2050 at the same pace as other banks operating in markets which have more mature green economy sectors. That being said, this is not carte blanche for South-east Asian banks to be doing business as usual. Giving more latitude to banks that are more exposed to emerging economies so that they are able to participate fairly does not mean they should avoid action. Banks that have lowered their net-zero targets to align with 'well below 2 deg C' can still avoid going down a slippery slope by taking clear, transparent, and science-based actions that demonstrate they are serious about climate alignment — even within a slightly less ambitious framework. This includes unveiling detailed climate action plans on why the shift to 'well below 2 deg C' was made, how this new target will be achieved, and what safeguards are in place to prevent them from lowering – once again – their climate commitments. Being transparent on their lending to fossil fuel clients and their strategies to transition these companies in hard-to-abate sectors, as well as ramping up their financing towards transition economic activities are also crucial. If banks want their stakeholders to not perceive their less stringent net-zero targets as weaker climate action, they need to be more rigorous on how they plan, execute and disclose their decarbonisation strategies.
National Observer
12-05-2025
- Business
- National Observer
Canada needs climate-aligned finance rules now
The Royal Bank of Canada (RBC) has quietly dropped its $500-billion sustainable finance target, citing recent amendments to Canada's Competition Act. These provisions require companies to substantiate their environmental claims to avoid greenwashing — hardly a controversial demand in an age of climate risk. And it's worth considering that the Competition Act has a long history of protecting consumers by ensuring an organization does not make false claims about their business or products. Rather than stand by its commitments, RBC walked away. This move raises a stark question: were these targets genuine and were they ever meant to be taken seriously? RBC's decision is not just disappointing — it's revealing. It exposes the fragile foundation of voluntary sustainability pledges that lack legal force and independent verification. And it underscores, with uncomfortable clarity, why Canada needs to move swiftly to adopt legislation like the proposed Climate-Aligned Finance Act (CAFA) — a bill I introduced in the last Parliamentary session to ensure that financial institutions align their activities with Canada's climate commitments under the Paris Agreement. What RBC's retreat tells us Let's be clear: the provisions of the Competition Act do not ban environmental claims. They simply demand that companies provide evidence. If RBC cannot — or will not — defend its own sustainability goals under this basic standard of consumer protection, it should alarm regulators, investors and Canadians alike. This development comes on the heels of all major Canadian banks withdrawing from the Net-Zero Banking Alliance (NZBA) earlier this year. The pattern is undeniable: when voluntary measures encounter even modest scrutiny, they crumble. And when opportunity presents itself, as was the case with the fallout from US President Donald Trump's re-election, our financial institutions waste no time in abandoning their sustainable finance commitments. The fact is RBC released its 150-page Sustainability Report during a moment of national political distraction and geopolitical uncertainty. And the report only mentions the 'retirement' of RBC's sustainable finance target in passing. This has only reinforced calls for greater accountability and transparency in the financial sector. RBC has walked away from its sustainable finance targets. Were these targets genuine and were they ever meant to be taken seriously? Voluntary isn't working Sustainable finance advocates and investors have long warned that voluntary commitments are no substitute for legal obligation. RBC's unwillingness, or inability, to provide evidence for its environmental claims, and the parade of banks leaving the NZBA, are clear proof we need more than voluntary pledges. No bank should be allowed to brand itself as sustainable, while continuing to finance fossil fuel expansion, without facing regulatory consequences. Leading worldwide economists have said it: climate risk is financial risk. Investors know this. Capital is available for companies ready to decarbonize and modernize, but they require credible, comparable climate disclosures. Without legislation, we risk leaving investors — and the broader public — vulnerable to misleading claims. Lack of ambition in sustainability and disclosure a concerning trend Pausing work on climate and ESG (Environment, Social and Governance) disclosure rules, as the Canadian Securities Administrators recently did, sends the wrong signal to global markets and our allies. It's strategically unwise to align with deregulatory trends in the US when Canada should be showing leadership in transparency and sustainability. The approach of the current US administration, which is increasingly hostile to ESG standards, is not only out of step with global expectations, but also increases financial risk. Following the same trajectory could expose Canada to financial instability. Most economic indicators suggest that the US is on the brink of a potential recession — driven in part by its failure to adequately manage systemic risks, including climate-related ones. In many parts of the world, climate-related risks are already materializing. Weakening disclosure rules at a time when climate risk is accelerating only increases financial uncertainty, discourages long-term investment, and undermines our competitiveness and resilience. Climate risk is no longer theoretical The materialization of climate risk is weakening our economy, our communities, and our long-term competitiveness and Canada is already paying a high price for climate inaction. In 2024 alone, extreme weather events, including wildfires, hailstorms, deep freeze and floods, cost Canadians a record $8.5 billion in insured damages. And these are just the insured costs; the true economic toll, from lost productivity, damaged infrastructure, health impacts and displacement is significantly higher. T/he Canadian Climate Institute estimates that by 2025, climate change will cost the Canadian economy $25 billion annually — roughly equivalent to 50 per cent of projected GDP growth. These figures are no longer warnings. They are a balance-sheet of realities. What climate-aligned finance legislation must do To be effective and fit for purpose, climate-aligned finance legislation must: Require financial institutions to align their portfolios with Canada's climate targets. Mandate disclosures on how they are managing climate-related financial risk. Prevent misleading environmental claims by rooting climate finance in science and law. Ensure central banks and regulators consider climate risk as part of financial stability. Had a framework, such as the one I proposed in CAFA, already been in place, RBC would not be able to quietly step back from its climate promises without consequence. While other jurisdictions like the European Union are already addressing this challenge by implementing a comprehensive sustainable finance taxonomy, mandatory ESG disclosures, and due diligence rules that apply to financial institutions and companies alike, Canada continues to lag. These jurisdictions understand that finance is not neutral in the climate crisis — it is either complicit in deepening it or actively contributing to solutions. A turning point for Canada's financial credibility With the recent election of Prime Minister Mark Carney, a globally respected figure in sustainable finance, Canada has a golden opportunity to lead. But leadership will require more than speeches. It demands a robust legislative backbone. We cannot build a resilient, low-carbon economy while tolerating greenwashing and regulatory arbitrage. We need a financial system that supports, not hinders, the transition. That means enshrining transparency, consistency and climate responsibility into law. We have the tools. The Climate-Aligned Finance Act stands at the ready for diligent and swift passage through the legislative process. Elbows up for a resilient and prosperous Canadian economy. Independent Sen. Rosa Galvez chaired the Senate Standing Committee on Energy, the Environment and Natural Resources in the 42 Parliament and currently serves on the Senate Standing Committee on National Finance, which oversaw the federal economic response to the COVID-19 pandemic.
Yahoo
29-04-2025
- Business
- Yahoo
Opinion: Bankers send mixed message on net zero
By Gina Pappano The 2025 bank annual general meeting (AGM) season is over. As a bank shareholder and executive director of InvestNow, I presented shareholder proposals to the Big Five Canadian banks. This was my third time doing so. In 2023, I asked them to commit to the Canadian oil and gas sector and rethink 'net zero by 2050.' In 2024, I asked them to study and report on the costs of adhering to net zero by 2050. In both instances, they refused. This year our formal ask of the banks was to quit both the Net-Zero Banking Alliance (NZBA) and the Glasgow Financial Alliance for Net Zero (GFANZ). These are two interrelated, UN-sponsored and, until recently, Mark Carney-led organizations that advocate phasing out the oil and gas industry to achieve net-zero emissions targets. They do this primarily by pressuring financial institutions to cut funding for oil and gas companies and projects. In effect, these organizations' goal is to eliminate one of Canada's most productive and prosperity-generating sectors. Of course, the end of Canadian oil and gas would be bad for bank shareholders and customers, as well as the Canadian economy writ large. It's a goal informed by ideology rather than the interest of the banks themselves or the shareholders to whom they have a fiduciary duty. Which is why, we argued, our banks should not continue down this net-zero path. Now, an odd thing happened this year. The banks announced they were leaving the two net-zero alliances before the AGMs even began. (We clearly under-asked!) Even so, they let us present our proposals, and I'm glad they did. It allowed me both to applaud them for leaving organizations that undermined their business but also to point out that this was just a first step. It's also necessary to leave behind the ideological madness of net zero. Attending the AGMs also gave me a chance to look in on the activist groups, like Investors for Paris Compliance, SHARE, MÉDAC, and For Our Kids, which all presented their own shareholder proposals or asked questions that were ideologically driven and decidedly opposed to oil and gas exploration and production in Canada. At the AGMs of BMO, TD, and RBC, things became personal. Activists named and attacked four directors on the bank boards (three of the four were female, I couldn't help but notice). Why? Entirely because they also sit on the boards of oil and gas and pipeline companies, which the activists claimed constituted a conflict of interest. They called these directors 'fossil-fuel compromised.' This was unprecedented and frankly, worrying. The activists are now targeting duly appointed and approved board members only because of their experience, past or present, in oil and gas. It all brought to mind the controversial Bill S-243 — the 'Climate-Aligned Finance Act' — which would forbid financial institutions from having board members with any kind of connection to oil and gas, even owning stock in companies that work on pipelines, while also requiring companies to have designated board members ideologically committed to the destruction of the oil and gas industry. (It's worth noting that Mark Carney testified before the Senate in favour of the bill last year.) At times the remarks of the bank CEOs themselves gave hope they were done with being pushed around by the activists and ideologues and were ready to change their tune on oil and gas. The phrase, 'Canada can and must feed and fuel the growing world' came up at two different AGMs, among other encouraging statements, such as 'the world wants what Canada can provide in great abundance. Canada can be a leader in sectors like energy, agriculture, critical minerals, advanced manufacturing and technology.' 'Canada needs a growth-first agenda.' 'Canada has an unprecedented opportunity to build a better and more prosperous future.' All of which is true. But any hope that common sense is being restored in banking faded when, during question-and-answer sessions, these same CEOs trotted out tired old phrases about their commitment to 'net zero, decarbonization, and the energy transition.' There was thus a huge disconnect between the prepared remarks with which they opened and their answers to questions. Which path they'll take moving forward is not clear. Do they support unleashing Canada's economic potential and building a prosperity-driven economy for all, or do they side with the activists in supporting a rapid phaseout of the backbone of our economy? Bjorn Lomborg: Net zero's cost-benefit ratio is crazy high Bjorn Lomborg: Don't double-down on net zero again Despite this year's success we at InvestNow clearly still have a lot of work to do. Now more than ever, our financial institutions need to be reminded to whom they are responsible. Hint: The answer is not our environmentalist activist class. It's their shareholders, first and foremost, and ultimately to Canada. Rest assured, we won't let them forget it. Gina Pappano is executive director of InvestNow. Sign in to access your portfolio
Japan Forward
28-04-2025
- Business
- Japan Forward
Trump Policies Create Headwinds for Global Decarbonization
このページを 日本語 で読む Major financial institutions in the United States and Japan are triggering a cascade by retreating from the international decarbonization framework. The shift is driven by mounting legal risks in the wake of the return of President Donald Trump to the White House in January 2025. Trump is known for his opposition to climate action. These institutions were expected to lead the global decarbonization effort. Now, however, they are criticized for appearing to appease the US President. As with his stance on free trade, the new Trump administration is once again shaking the foundations of international cooperation. This time by targeting climate initiatives. (©Sankei Shimbun/JAPAN Forward) At the center of the withdrawals is the Net-Zero Banking Alliance (NZBA), launched in 2021 under the Biden administration. By 2024, more than 140 financial institutions had joined the alliance. Each pledged to align their lending and investment strategies with decarbonization goals, aiming for net-zero greenhouse gas emissions by 2050. However, after Trump's return to office was confirmed in November 2024, US banks — including Goldman Sachs and Citigroup — moved swiftly to exit. Sensing a changing political climate and heightened legal risks, they pulled out in rapid succession. The trend soon spread to Japan. In March, Sumitomo Mitsui Financial Group (SMFG) led the exit, followed by Mitsubishi UFJ Financial Group (MUFG), Mizuho Financial Group, and others. Among Japan's major banks, only Sumitomo Mitsui Trust Group (not the same as SMFG) remains in the alliance. (©Sankei Shimbun/JAPAN Forward) Behind the withdrawals are concerns that NZBA participation could violate antitrust laws. More specifically, there is concern that coordinated reductions in lending to fossil fuel companies would be viewed as antitrust actions. In the US Congress, especially among Republican lawmakers, the alliance has been labeled a "climate cartel." Under an administration unafraid of disrupting private enterprise, such as through reciprocal tariffs, remaining in the NZBA is increasingly considered the financial institutions claim continued commitment to decarbonization. However, a megabank insider criticized the gap between their words and actions. "Didn't they join because they believed in it? Now it just looks like they're leaving because everyone else is." Financial support has played a critical role in affirming that "decarbonization has value," even when environmentally friendly products come at a higher cost. That belief has helped sustain momentum in the climate movement. The recent wave of NZBA exits could trigger a sharp shift in tone — and risk stalling progress.
Yahoo
16-04-2025
- Business
- Yahoo
NZBA scraps requirement for banks to strictly target a 1.5°C warming scenario
This story was originally published on ESG Dive. To receive daily news and insights, subscribe to our free daily ESG Dive newsletter. The United Nations-backed Net-Zero Banking Alliance released updated guidelines for how banks should set climate targets Tuesday, lowering the requisite ambition for financial institutions that are members of the group. The guidance released April 15 requires signatories of the climate group to align their targets with limiting global warming 'to well below 2 [degrees Celsius], striving for 1.5°C.' This marks a departure from previous guidance requiring portfolio alignment with a 1.5°C warming scenario and comes after six of the largest U.S. banks left the group between late December and early January. The guidance puts the UN-backed industry group's guidance at odds with that of the Science Based Targets initiative, which called on banks to align targets with a 1.5 degree warming scenario in its Financial Institution Net-Zero Standard. SBTi also maintained the target in the draft of its updated Corporate Net-Zero Standard. This week's update represents the third version of NZBA's standards, which were also revised in March 2024. The weakened target comes a year after the UN-backed banking alliance stated that banks should commit to net-zero by 2050 and set 'intermediate 2030 sectoral targets in line with the latest science using low or no overshoot 1.5°C scenarios' in the second version of the guidelines. The latest version of the alliance's guidance says banks' 'targets should align with the goals of the Paris Agreement' — targeting temperature rise well below 2 degrees — and 'be science-based and support the global transition to a net-zero economy.' The ambition section of the guidance adds that 'banks should also consider policy at the regional and national levels.' 'Achieving the objectives of the Paris Agreement and limiting global temperature increases to well-below 2°C, striving for 1.5°C, will require ambitious actions from all strands of the economy,' NZBA said in the summary. 'The window for action is small,' the organization added. 'The consensus of climate scientists is that global warming must be limited to 1.5°C above the preindustrial average by the end of the century to avoid the worst impacts of climate change.' The UN-backed climate organization recommends that banks "individually and independently' set and disclose near- and long-term targets that support reaching net-zero emissions in line with the Paris Agreement. Additionally, NZBA recommends that banks set emissions baselines and annually report and measure the emissions from their lending, investment and capital markets portfolios; 'use widely accepted climate-based decarbonization scenarios' for target setting; and regularly review their targets 'to ensure consistency with current climate science.' On the final point, NZBA recommends that banks review their targets at least every five years to ensure they align with the latest reports and assessments from the Intergovernmental Panel on Climate Change. The guidance change comes after Goldman Sachs, Wells Fargo, Bank of America, Citigroup, Morgan Stanley and JPMorgan Chase left the UN-aligned group in rapid succession. Some of the banks have dodged state-level probes from Republican state attorneys general in the wake of their exits and other climate retreats. The lack of requiring a strict 1.5°C portfolio alignment does not come as a surprise, as reports that the banking alliance was considering ditching the goal have trickled out since late February. A member of NZBA's steering group confirmed that the organization would vote on axing the requirement earlier this month. The reception of the updated guidance has been mixed, and one bank announced their departure Tuesday after the formalization of the loosened standards. Morningstar DBRS, the financial institution's global credit rating agency, said in March it did not view the change 'as material from a credit perspective,' following initial reports of the considered change. 'It would be a pragmatic move, given the slow pace of transition we have seen, but it would also remain an ambitious target because it would still mean that we are on path for an orderly transition towards net zero, which implies lower transition costs compared to an abrupt or disorderly transition,' the analysts wrote last month. 'Based on climate models, a potential new NZBA pledge has no consequence on physical risk in the next decade.' However, some climate and sustainable finance groups have been opposed to the lowered ambitions of the updated guidance since reports of its consideration began to come out. Those views were reinforced following Tuesday's update by a mix of sustainable investment groups, nonprofits and banks. Netherlands-based Triodos Bank announced it was departing NZBA Tuesday and explicitly blamed the lowered ambitions of the new guidelines for its departure. The bank said that though there were improvements made from draft updates that were circulated, 'the new guidelines fall short of the needed urgency to align loans and investments portfolios with the 1.5 degrees Celsius global warming scenario.' 'The disturbing reality that the world is not on track for 1.5°C should not be taken as a reason to give up on trying to meet the target, but a flashing red light on the need to double down on efforts to cut emissions,' sustainable finance nonprofit Reclaim Finance said after the steering committee member confirmed the vote. 'Every 0.1 of a degree matters and the higher global temperatures get, the harder it will be to deal with these impacts, and the greater the financial risks for banks and their investors,' responsible investment group Share Action's Co-Director of Corporate Engagement Jeanne Martin said on Tuesday. Recommended Reading Why climate alliance memberships are no longer 'en vogue' for Wall Street
